There are a number of different insurances for your home:

1. Mortgage Insurance

Insuring against being unable to pay the mortgage

There are various options available to you when it comes to Mortgage Insurance. It is vital that you get expert advice before committing to any mortgage insurance policy, as everyone’s circumstances are different and what is best for one person might not be right for another.

You do not need to take out any insurance to enable you to be able to pay your mortgage if you prefer not to.

Homeowners can take out Mortgage Payment Protection Insurance (MPPI), which covers against being unable to pay the mortgage due to accident, sickness or unemployment (and therefore minimises the threat of repossession).

MPPI is usually limited to a set period (12 or 24 months). It may not be suitable for the self-employed or those with pre-existing medical conditions – read the small print! It gives peace of mind for anyone who would be unable to pay their mortgage in the circumstances outlined above.

However, MPPI is not cheap. Prices and Terms & Conditions can vary significantly so it’s worth shopping around.

An alternative to Mortgage Payment Protection Insurance is Income Protection (IP). Income Protection pays you a monthly amount if you are unable to work due to accident or sickness and is normally paid until you are able to return to work or until retirement, or death. Payment amounts are a percentage of your earnings, typically 50%, and are tax free.

Critical illness cover pays out a cash lump sum if you’re diagnosed with one of a number of critical illnesses. These include some types of cancer, a heart attack, and multiple sclerosis. It does not give you a monthly payment.

Life Assurance pays out when you die. It can be either Term Assurance, which is valid for a finite term, e.g. 10 years, or Whole-of-life Assurance, which pays out when you die.

If you choose Term Assurance, there are two further options:

  1. A Level-term policy, where you pay the same amount (and the amount you’re covered for remains the same) throughout the term.
  2. A Decreasing-term policy, where your payments reduce over time. These can fit well with a repayment mortgage where the amount you owe is reducing year by year.

Payment Protection Insurance (PPI) covers your debt repayments if you are unable to work through illness, accident or unemployment. As has been widely reported, many of these policies have been mis-sold or added on the back of loan agreements without this being made clear. In any event, for most people an Income Protection (IP) policy is more suitable than PPI.

2. Buildings Insurance

Insuring the property itself

If you have a mortgage on your property, your Lender will usually require you to have Buildings Insurance, although it is unlikely you wouldn’t want to insure your biggest asset anyway.

Buildings insurance will cover you for any damage to the structure of the property – floors, walls and roofs – as well as fixtures and fittings such as bathroom suites and fitted kitchens. In the worst case scenario a property could be completely destroyed by fire so for most people Buildings Insurance is a top priority.

Mortgage Lenders usually offer an insurance policy, although in most cases you will get a cheaper quote if you shop around.

3. Contents Insurance

Insuring the contents of your home

Contents Insurance covers items such as furniture and furnishings, electrical goods and personal belongings. It is optional and whether you take it is likely to depend on how high you perceive the risk to be, and how valuable your possessions are.

Many Insurers offer a combined Buildings and Contents package that can be good value compared to buying separate policies.

By Richard Watters

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